ANALYSIS-China Should Maintain Real Estate Restrictions Despite Slowdown, May Relax Tactics


Band Kevin Yao

BEIJING, October 14 (Reuters)Chinese leaders, fearing that a lingering real estate bubble could jeopardize the country’s long-term rise, are likely to maintain severe restrictions on the sector even as the economy slows, but could relax some tactics as needed, political sources and analysts said.

President Xi Jinping appears determined to move forward with the latest round of property crunch, even if it adds to the pain in the short term, unlike previous campaigns which tended to be watered down when economic growth started to falter, they said.

Xi’s determination stems from a longer-term structural push to reduce the economy‘s reliance on real estate and debt and channel more resources into high-tech manufacturing and other emerging sectors to stimulate growth.

Despite the rapid expansion of other industries in recent timesT years ago, the real estate sector, along with related sectors such as construction, still accounts for more than a quarter of China’s gross domestic product (GDP).

The world’s second-largest economy has seen an impressive rebound from the pandemic, but there are signs that the recovery is faltering. Worsening electricity shortages come on top of pressure from real estate restrictions, commodity shortages, supply chain disruptions and weak consumer spending.

Global concerns about a possible spillover of credit risk from the Chinese real estate sector into the wider economy have also intensified as major developer China Evergrande Group 3333.HK struggles with over $ 300 billion in debt.

Liu He, Xi’s chief economic aide, has repeatedly warned of financial risks, while Guo Shuqing, head of the banking regulator and party leader of the People’s Bank of China (PBOC), said the property was the largest “gray rhino” in the country.

The “gray rhino” refers to an obvious and significant threat that is often overlooked until it is too late.

“The real estate restrictions will be painful, but it is a price that must be paid,” said a source involved in the internal policy discussions.

“In the past, we have always loosened the controls because of economic downturns, corn this time management’s determination seems very firm. “

The State Council’s Information Office and the PBOC did not immediately respond to Reuters requests for comment.


Despite numerous campaigns over the years to curb high house prices, housing in China has become increasingly unaffordable, hampering Beijing’s efforts to raise birth rates and cope with rapid aging and slowing population growth, analysts said.

Authorities increased the latest real estate restrictions in August 2020, when the PBOC introduced new measures to closely monitor and control developer debt levels – defining “three red lines” limit their borrowing and contain the risk of indebtedness.

But the price for policy mistakes would be high, given the size of the industry, its importance as a source of income for local governments, and the risks to social stability in the event of a rapid drop in house prices. Many Chinese have never seen a prolonged housing collapse.

“We must prioritize the stability of the real estate sector. We do not want to see real estate prices rise rapidly, nor to see many real estate developers go bankrupt,” Zong Liang said. chief researcher at the Bank of China, told Reuters.


While the PBOC will likely maintain its pressure on developers to reduce debt and clean up their balance sheets, some marginal policy changes may be possible to correct excessive credit crunch by some lenders, insiders and analysts have said.

Last month, as Evergande’s debt crisis escalated, the PBOC said it would protect the legitimate rights and interests of homebuyers.

“The ‘three red lines’ are unlikely to change, but the implementation of the rules could be loose a little bit, ”said Lian Ping, chief economist at Zhixin Investment.

“The mortgage standard does not to be relaxed, but the scale of these loans could be increased somewhat, ”he said.

Banks might also have more leeway to lend to genuine home buyers as opposed to speculators, and healthier developers might get more support, analysts said.

“Amid the worsening slowdown, we expect Beijing to step up fiscal and monetary easing measures, although it largely maintains its tight stance on the real estate sector and those with high carbon emissions,” Nomura’s chief China economist Ting Lu said in a statement. Remark.

However, some local governments may introduce minor easing measures, focusing on lifting local restrictions and adding some subsidies, Lu said.

The PBOC, meanwhile, has funneled more credit into the manufacturing sector in recent months, to the detriment of the real estate sector.

Medium and long-term loans outstanding for the manufacturing sector increased by 41.6% year-on-year in June, following an increase of 24.7% a year earlier, while the growth in outstanding loans for the sector real estate slowed to 9.5% in June from 13.1% a year earlier, according to central bank data.

(Reporting by Kevin Yao; Editing by Kim Coghill)

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